27 February 2014
The Time For Tax Savings Is Now
Despite its association with death, taxes aren't always that bad. A few of us even get quite a bit of money back come tax season. And at the very least there are ways to curb the eventual April blow by planning ahead. Often times, the ways in which people can offset taxes are financially beneficial as well. As cumbersome as tax planning is, there are a few basic ways you can learn to save before you're pouring over old receipts at the 11th hour.
Taking a Bite Out of Tax
- Reduce Your Adjusted Gross Income (AGI) - While parting with hard earned money in any form is difficult and frustrating , setting a portion of your income aside into tax deductible plans will help soften the ultimate tax blow. The reality though, at least the taxable reality, maintains the more one makes, the more the government taketh away. There are ways however, to climb the economic ladder and stow away hard earned cash before it's locked up in a black hole of tax payments. What are some ways you can accomplish this? Portion what you can of your income into retirement plans such as a 401(K). Other deductions that will reduce your AGI include educational costs and money invested in an individual retirement account (IRA). It is important to remember that all deductible contributions are itemized on the Form 1040, and starting now will save not just money, but loads of time come April.
- Maximize Tax Deductions - Deductible items such as interest paid on mortgage payments, charity contributions, medical expenses, dependents, education, and marriage, can all take an edge off your taxable income. You can also deduct state sales tax when state income tax deductions are not available or amounts to the lesser of the two. All investment related expenses are also tax deductible in addition to state taxes.
- Use tax credits to your advantage - What is a tax credit? According to the Internal Revenue Service (IRS), a tax credit is a dollar-for-dollar reduction in the tax and can be directly deducted from taxes owed. Tax credits are an excellent way to reduce taxes. Paying for college education, investing in retirement plans, and even adoption can be considered a tax credit and used to reduce the total amount paid. The IRS determines the credit amount. Additional examples of tax credits are the Earned Income Credit (EIC), certain retirement plans, IRAs, and paying for a college level education.
- Use a tax planner - it is advisable to use a tax planner every 2-3 years to learn the ins and outs of filing a tax return and where money can be saved or earned. A tax planner can also advise on the types of investments one can make to offset the total amount of taxes owed. It is not uncommon to find many people are unable to pay their taxes in full all at one time. A tax planner will assess your financial situation and develop a plan tailored to save you the most money come tax season.
- Research, research, research - continuous updating and research is needed to stay on top of tax issues as new rules and regulations are added yearly and could save you a lot of time and money. For example, new literature always surfaces and discusses the best ways to profit from exemptions, new filing options, and so on. Use the Internet to accumulate all the pertinent information that can help you determine the amount you'll owe or get back in advance. In addition to credible web sites, there are tax software programs that will do all the calculations for you.
Follow these tips and make the most out of your 2014 taxes!